Y376 Y376 International International

Political Political EconomyEconomyOctober 6, 2009October 6, 2009

North-South Aid Issues: North-South Aid Issues: What the Developing What the Developing

Countries WantCountries Want Increasing the total amountIncreasing the total amount Untying “tied” aidUntying “tied” aid Increasing the proportion of aid Increasing the proportion of aid

channeled through multilateral channeled through multilateral agenciesagencies

Making aid more automaticMaking aid more automatic Giving LDCs more control over the Giving LDCs more control over the

spending of aidspending of aid

What is Aid (Official What is Aid (Official Development Development Assistance)?Assistance)?

Undertaken by governmentsUndertaken by governments Main objective to promote economic Main objective to promote economic

development and welfaredevelopment and welfare Made on concessional terms with a Made on concessional terms with a

grant element of at least 25 percentgrant element of at least 25 percent

Figure 6-1. Annual Bilateral ODA by the G-5 Figure 6-1. Annual Bilateral ODA by the G-5 Countries, 1960-2007, in Billions of Countries, 1960-2007, in Billions of

Constant 2006 DollarsConstant 2006 Dollars

Source: OECD Statistics online.

Figure 6-3. ODA from DAC Countries, OPEC, Figure 6-3. ODA from DAC Countries, OPEC, CMEA, and non-DAC Countries, 1956-2007, in CMEA, and non-DAC Countries, 1956-2007, in

Billions of Current DollarsBillions of Current Dollars

Source: OECD Statistics Online.

ODA, 2000-2006ODA, 2000-2006

ODA by Major Donors, ODA by Major Donors, 20062006

Aid as Percentage of GDPAid as Percentage of GDP

Example of US Example of US Aid to IraqAid to Iraq

•Infrastructure

•Water

•Electricity

•Health system

•Schools

•Reconstruction

•Elections

Source: http://www.usaid.gov/iraq

US Aid to Iraq, 2004-US Aid to Iraq, 2004-20072007

US Aid to Iraq in US Aid to Iraq in Comparison with Aid to Comparison with Aid to

Germany and JapanGermany and Japan

Why Hasn’t US Aid to Why Hasn’t US Aid to Iraq Worked?Iraq Worked?

Preference for US over Iraqi Preference for US over Iraqi contractors (higher costs)contractors (higher costs)

Huge proportion of spending went to Huge proportion of spending went to private companies like private companies like Bechtel

US concentration on rebuilding oil US concentration on rebuilding oil fields and other infrastructure projectsfields and other infrastructure projects

Al Qaeda disruption of aid work, Al Qaeda disruption of aid work, especially in the rebuilding of especially in the rebuilding of infrastructureinfrastructure

Protecting Iraqi Oil Protecting Iraqi Oil FieldsFields

Table 6-2. U.S. Foreign Aid Programs, Table 6-2. U.S. Foreign Aid Programs, 20042004

Department Name of Program $Millions

Department of State Refugee 756

International Organizations and Programs

320

ESF (policy) 3,263

NIS (distribution) 584

SEED (distribution) 442

HIV/AIDS (distribution) 488

Andean Counter-Drug 727

Treasury Department Contributions to Intl. Financial Institutions

1,383

Debt Relief 94

Dept. of Agriculture PL-480 II (budget) 1,185

USAID DA, child survival, disaster 4,511

MCA 994

Iraq Reconstruction 18,439

Other 1,000-1,500

Source: Carol Lancaster and Ann Van Dusen, Organizing U.S. Foreign Aid (Washington, D.C.: Brookings Institution, 2005), p. 14.

Table 6-1. Bilateral Aid to Former Table 6-1. Bilateral Aid to Former Colonies, 1970-1994Colonies, 1970-1994

DonorDonor Former Colony Share Former Colony Share of Total Aid (in of Total Aid (in percentages)percentages)

PortugalPortugal 99.699.6

United KingdomUnited Kingdom 78.078.0

FranceFrance 57.057.0

BelgiumBelgium 53.753.7

Netherlands Netherlands 17.117.1

Source: Alberto Alesina and David Dollar, “Who Gives Foreign Aid and Why?Journal of Economic Growth, 5 (March 2000), p. 37.

SummarySummary Aid flows are strongly influenced by Aid flows are strongly influenced by

former colonial relationships and power former colonial relationships and power politicspolitics

Net aid flows do not always remain Net aid flows do not always remain positive because some aid takes the form positive because some aid takes the form of loans that must be paid backof loans that must be paid back

The US share of total aid to LDCs The US share of total aid to LDCs declined markedly over timedeclined markedly over time

Aid is primarily needed to deal with Aid is primarily needed to deal with poverty, disasters, and wars and cannot poverty, disasters, and wars and cannot be used in general to promote long-term be used in general to promote long-term economic developmenteconomic development

Table 6-3. Millennium Development GoalsTable 6-3. Millennium Development Goals

1 Eradicate extreme poverty and hunger

2 Achieve universal primary education

3 Promote gender equality and empower women

4 Reduce child mortality

5 Improve maternal health

6 Combat HIV/AIDS, malaria, and other diseases

7 Ensure environmental sustainability

8 Develop a global partnership for development

Source: http://www.unmillenniumproject.org/goals/index.htm.Source: http://www.unmillenniumproject.org/goals/index.htm.

Figure 6-2. Total Official and Private Flows Figure 6-2. Total Official and Private Flows from DAC Countries to Developing Countries, from DAC Countries to Developing Countries,

1960-2006, in Billions of Constant 2006 1960-2006, in Billions of Constant 2006 DollarsDollars

Source: OECD Statistics Online

Figure 6-5. Long-Term Debt Outstanding, Low- Figure 6-5. Long-Term Debt Outstanding, Low- and Middle-Income Countries, 1970-2006, in and Middle-Income Countries, 1970-2006, in

Trillions of Current DollarsTrillions of Current Dollars

Source: World Bank, World Development Indicators.

Figure 6-6. Debt/GDP and Debt Figure 6-6. Debt/GDP and Debt Service/Exports of Goods and Services in Service/Exports of Goods and Services in Percentages, 1981-2006, Emerging and Percentages, 1981-2006, Emerging and

Developing CountriesDeveloping Countries

Source: World Bank, World Development Indicators; InternationalMonetary Fund, World Economic Outlook Database, April 2008. Debt service data are for low and middle income countries.

Origins and Origins and Consequences of the Consequences of the

Debt CrisisDebt Crisis Recession in the industrial world Recession in the industrial world

meant that banks had to find meant that banks had to find borrowers in the developing worldborrowers in the developing world

Petro-dollar recycling was the was the consequenceconsequence

Growth in the developing world was Growth in the developing world was hurt by the anti-inflationary policies hurt by the anti-inflationary policies adopted at the end of the 1970sadopted at the end of the 1970s

Petro-Dollar RecyclingPetro-Dollar Recycling

Oil-importing ICs

Oil-exportingCountries

InternationalBanks

Third Worldborrowers

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